Gautam Ghosh's blog on how social media and technology and online communities are impacting organizations, people, careers and learning. Some focus on Social Recruiting, Social HR, Social Learning and Social Recognition.

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Aug 17, 2010

Keeping policies simple and simpler

My twitter friend @vikramadhiman asked me to read this article on Netflix's vacation policy written by @DanielPink and I just loved the simplicity behind the thought.

I have always believed that organiztional processes and policies are needlessly complex - and in a self-organizing system (which is better to deal with complexity in the outside environment) people should know at the maximum three rules - and interpret the rest on their own or as a collective entity.

This policy also fits in with creating a Results Only Work Environment. What is puzzling is why organizations create layers of management people and waste time managing issues that employees could sort on their own, letting them focus on results and performance.

At Netflix, the vacation policy is audaciously simple and simply audacious. Salaried employees can take as much time off as they'd like, whenever they want to take it. Nobody – not employees themselves, not managers – tracks vacation days.

In other words, Netflix's holiday policy is to have no policy at all.

If that sounds like a recipe for anarchic stew, devoid of essential workplace nutrients such as temperance and hard work, think again. In its own way, Netflix's non-policy is more attuned to the nature of 21st century work, and even to the values of industriousness and self-discipline, than its sterner counterparts.

Back in the old days – 2004 – Netflix treated holidays the old-fashioned way: it allotted everyone N days a year. You either used them up – or you duked it out with accounting to try to get paid for the time you didn't consume.

But eventually some employees recognised that this arrangement was at odds with how they really did their jobs. After all, they were responding to emails on weekends, they were solving problems online at home at night. And every so often, they would take off an afternoon to ferry a child to the paediatrician or to check in on an ageing parent.

Since Netflix wasn't tracking how many hours people were logging each work day, these employees wondered, why should it track how many holidays people were taking each work year?

Fair point, said management. As the company explains in its "Reference Guide on our Freedom & Responsibility Culture", a 128-slide PowerPoint presentation that has spread like samizdat literature on the internet: "We should focus on what people get done, not how many hours or days worked. Just as we don't have a nine to five day policy, we don't need a vacation policy."

So the company scrapped its formal plan. Today, Netflix's roughly 600 salaried employees can vacation any time they desire for as long as they want – provided that their managers know where they are and that their work is covered.

This ultra flexible, freedom-intensive approach to holiday time hasn't exactly hurt the company. Launched in 1999, Netflix now has market cap of nearly $7bn (£4.5bn). Meanwhile, its chief rival, the video rental chain Blockbuster, last month was delisted from the New York Stock Exchange.

Perhaps more importantly, this non-policy yields broader lessons about the modern workplace.

For instance, ever more companies are realising that autonomy isn't the opposite of accountability – it's the pathway to it. "Rules and policies and regulations and stipulations are innovation killers. People do their best work when they're unencumbered," says Steve Swasey, Netflix's vice-president for corporate communication. "If you're spending a lot of time accounting for the time you're spending, that's time you're not innovating."

The same goes for expenses. Employees typically don't need to get approval to spend money on entertainment, travel, or gifts. Instead, the guidance is simpler: act in Netflix's best interest. It sounds delightfully adult. And it is - in every regard. People who don't produce are shown the door. "Adequate performance," the company says, "gets a generous severance package."

The idea is that freedom and responsibility, long considered fundamentally incompatible, actually go together quite well.

What's more, the Netflix holiday policy reveals the limits of relying on time in managing the modern workforce. In an era when people were turning screws on an assembly line or processing paper in an office, the connection between input and output was tight. The more time you spent on a task, the more you produced.

But in much white-collar work today, where one good idea can be orders of magnitude more valuable than a dozen mediocre ones, the link between the time you spend and the results you produce is murkier. Results are what matter. How you got there, or how long it took, is less relevant.

Finally, the Netflix technique demonstrates how the starting premises of workplace arrangements can shape behaviour.

In his new book, Cognitive Surplus: Creativity and Generosity in a Connected Age, New York University scholar, Clay Shirky, argues that when we design systems that assume bad faith from the participants, and whose main purpose is to defend against that nasty behaviour, we often foster the very behaviour we're trying to deter. People will push and push the limits of the formal rules, search for every available loophole, and look for ways to game the system when the defenders aren't watching. By contrast, a structure of rules that assumes good faith can actually encourage that behaviour.

So if you think people in your organisation are predisposed to rip you off, maybe the solution isn't to build a tighter, more punitive set of rules. Maybe the answer is to hire new people.

To paraphrase one Netflix executive, the company doesn't have a clothing policy either. But – so far at least – nobody has shown up to work naked.